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The dynamics of television advertising with boundedly rational consumers

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  • Gomes, Orlando

Abstract

The paper adapts a static model of television advertising into a dynamic scenario. In its original form, the model consists on a profit maximization problem of a television network working in a competitive environment. The network sells commercial time to advertisers and tries to minimize the effects of viewers’ aversion to ads. Viewers are assumed heterogeneous with regard to the preferences over the types of products companies sell through ad time. Into this framework we introduce an intertemporal rule reflecting the possible preference changes of consumers (these are boundedly rational and their utility for different types of products varies over time). The introduction of the intertemporal rule originates interesting dynamic results, namely in what concerns the evolution over time of crucial variables like the total time of broadcasting that networks allocate to advertising or the amount of revenues that satisfies the profit maximization condition. As in the original model, attention will be given to the possibility, that cable television allows, of ad addressability.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2847.

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Date of creation: Sep 2006
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Handle: RePEc:pra:mprapa:2847

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Related research

Keywords: Television advertising; Networks’ profit maximization; Heterogeneous viewers; Ad addressability; Bounded rationality; Nonlinear dynamics;

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References

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  1. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
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